COMPARATIVE ADVANTAGE

Comparison of average monthly wages Bangladesh 2013 Andhra Pradesh 2016 Bihar 2016 West Bengal 2016 Gujarat 2016 Maharashtra 2016 Haryana 2016 Vietnam 2015 Indonesia 2013 China 2013 Harnessing manufacturing sectors such as clothes and leather, which require low skill, is the key to large scale labour absorption and export growth, according to the Economic Survey 2016-17.

The Survey has an entire chapter on the subject, titled “Clothes and Shoes: Can India Reclaim Low Skill Manufacturing?”.

The Survey pointed out that India was at a good position to take advantage of China’s higher wage costs. But, it also noted, with alarm, that this was not happening.

“The space vacated by China is fast being taken over by Bangladesh and Vietnam in case of apparels; Vietnam and Indonesia in case of leather and footwear,” the Survey said. It also said Indian apparel and leather firms were relocating to Bangladesh, Vietnam, Myanmar, and even Ethiopia.

India’s garment exports have been facing stagnation since last year because of depressed conditions in major export markets such as the US and the European Union.

While Bangladesh and China have been blamed for aggressively edging out Indian exporters from traditional markets such as Europe, industry insiders have also blamed recurring structural issues, such as lesser availability of cotton in the past two years.

India exported apparel worth $10.96 billion during the April-November period of 2016. According to the Apparel Export Promotion Council, the garment sector alone accounted for more than 47 per cent share in all textile goods exported from the country. In the last financial year (2015-16), India’s garment exports were about $16.9 billion.

The ~6,000-crore package announced by the government for the textile industry in July and notified in September last year, is now expected to bear results much later than expected. Textile ministry officials have also 80-120 81 84 109 114 118 119 180-250 120-150 250-300 said there was no timeline for when the package was expected to deliver results. While the Survey bet on such recent government policy in the sector, it also called for further action, such as negotiation of more free trade agreements (FTA).

Any FTA with the EU and the UK would have to consider leather and apparel sectors as a priority. “Based on work initiated in last year’s Survey, we calculate additional $3 billion in the apparel, leather and footwear sectors, and additional employment of 150,000,” the Survey said.

It also said the government was taking disadvantages faced by Indian exporters in foreign markets very seriously. The leather sector, the Survey, was poised to take off on the back of domestic consumption, $12 billion (~81,600 crore) in 201516. According to government estimates, the leather industry was $17.85 billion in size in the same period, with exports accounting for $5.85 billion. At 47 per cent, footwear accounted for the lion’s share of leather export.

However, the Survey also noted challenges such as poor logistics, burdensome labour regulations and distorting tariff policies. It said labour costs, that boosted India’s comparative advantage in this sector also seemed to not work in its favour.

This had to do with regulations on minimum overtime pay, as well as onerous mandatory contributions that had been compared to de facto taxes for low-paid workers in small firms, the Survey said. The latter had also been held responsible for a 45 per cent lower disposable salary for workers, apart from a lack of flexibility in part-time work and high minimum wages.

Among more structural issues, the Survey noted, high tariffs on yarn and fibre, which increases the cost of producing clothing, as well as the fact that apparel and leather firms are smaller compared to those in major competitors such as China, Bangladesh and Vietnam.